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Best Buy: Where We’d Back Up the Truck

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Published : November 28th, 2012
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( 15 votes, 1.5/5 )
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Category : Opinions and Analysis





Let us say a prayer for Best Buy as the company attempts a daring overhaul. There is surprisingly good news on this front, and we’ll get to it in a moment. Suffice it to say, the stakes are extremely high, since failure could mean that ten years from now, quite a few of the things Americans buy other than food will necessarily come from Walmart, Costco and Amazon. For USA shoppers used to limitless variety, this would be Bedford Falls without George Bailey. Bleak as that may sound, it hardly exaggerates the possible endgame of a trend that has seen vacated storefronts spread like a pox across America. Big-box operators in particular have been failing at an alarming rate, leaving gaping holes in strip malls and once-thriving city streets. The Great Indoors, Hollywood Video, Linens ’n Things, K.B. Toys, Borders, Montgomery Ward and Woolworth’s were all household names that have vanished from the retail landscape if not yet from memory.

Competition in the consumer electronics business in particular has been brutal, laying waste not only to CompUSA and Circuit City in recent years, but, before them, to Tweeter, Federated, The Wiz, Crazy Eddie, Incredible Universe, Musicland, The Good Guys and Computer City. This is capitalism’s “creative destruction” at its most devastating, and it could continue to ravage the retail scene for years to come. Just ponder the list of big-box survivors whose days could be numbered: Sears, Barnes & Noble, Bed Bath & Beyond, JC Penney, Macy’s, Nordstrom, Office Depot, Office Max, Staples, Toys R Us, Blockbuster Video. Sears, which has been dying since the 1980s, few will miss. But if two far better emporiums, Macy’s and Nordstrom, fail, we’ll all be buying pants the same way we now buy shirts: “One-size-fits-all-orangutans”.

The Good News…

Now for the good news: Best Buy’s future has been entrusted to a guy with some very good ideas and a solid game plan. Stephen Gillett, 36, came to the company from Starbucks, where as chief information officer he helped pull the ubiquitous coffeehouses out of a steep dive. At Best Buy, his goal is to build on the firm’s main strength: showrooms that are everywhere. Nor is their drawing power in doubt. With $50 billion in revenues last year, Best Buy sold more PCs, cameras and phones than any other consumer electronics vendor in the world, including Walmart ($35 billion) and Amazon ($14 billion).

So how does Best Buy get customers to buy the stuff they’ve come to the showrooms to examine? Gillett’s plan is simple: put experts on the sales floor who can provide in-depth answers to shopper’s questions; then, do your best to match or beat the competition’s lowest price, online or off. Concerning the sales-force upgrade, most of Best Buy’s floor personnel are generalists with just a smattering of knowledge about the various products they sell. Under Gillet’s regime, they’d be more like the whizzes at Apple stores, able to provide detailed information and a level of service that has been sorely lacking at Best Buy stores since the chain was founded in 1981.

A Jump on AMZN, eBay

Keep in mind that the company already has a formidable presence online, operating the 11th largest ecommerce site and growing sales revenues, currently around $3 billion, by more than 15% per quarter. Ecommerce could account for fully half of Best Buy’s revenues within three years. Meanwhile, shipments to the company’s 1,400 stores are already quick and reliable, creating a ready-made distribution network — like the ones Amazon and eBay are building — for online shoppers who want to pick up their merchandise the same day.



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Rick Ackerman is the editor of Rick’s Picks, a daily trading newsletter and intraday advisory packed with detailed strategies, fresh ideas and plain old horse sense.
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